U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
For the transition period from ________ to ___________
Commission File No. 333-136247
Domark International, Inc.
(Name of small business issuer as specified in its charter)
Nevada 20-4647578
(State of Incorporation) (IRS Employer Identification No.)
254 S Ronald Reagan Blvd, Ste 134
Longwood, FL 32750
321-250-4996
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act) Yes [ ] No [X]
As of January 22, 2012, there were 30,315,298 shares of Common Stock, $0.001 par
value per share, issued and outstanding and there were 50,000 shares of
Preferred Stock A, $0.001 par value per share, issued and outstanding and there
are zero shares of Preferred Stock B, $0.001 par value per share, issued and
outstanding.
DOMARK INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion & Analysis of Financial Condition and
Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Mine Safety Disclosure 20
Item 5. Other information 21
Item 6. Exhibits 21
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DOMARK INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
November 30, May 31,
2012 2012
---------- ----------
CURRENT
Cash $ 6,332 $ 52,269
Prepaid expenses 68,042 4,897
Prepaid license fee 2,000,000 --
---------- ----------
Total Current Assets 2,074,374 57,166
---------- ----------
Other Assets
Deferred financing costs -- 24,799
Website development costs, net -- 2,250
XSE license, net 8,902 9,635
Prepaid license fee long-term 3,105,480 --
---------- ----------
Total Other Assets 3,114,382 36,684
---------- ----------
Total Assets $5,188,756 $ 93,850
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
DOMARK INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
November 30, May 31,
2012 2012
------------ ------------
LIABILITIES & EQUITY
Accounts payable $ 419,941 $ 89,164
Accounts payable - related party -- 15,366
Notes payable 545,645 545,645
------------ ------------
Total Current Liabilities 965,586 650,175
------------ ------------
LONG-TERM LIABILITIES
Due to affiliates and shareholders 158,437 1,000
------------ ------------
Total long-term liabilities 158,437 1,000
------------ ------------
TOTAL LIABILITIES 1,124,023 651,175
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock series A, $0.001 par value,
Authorized: 2,000,000 Issued: 50,000 and 50,000 as of
November 30, 2012 and May 31, 2012, respectively 50 50
Convertible preferred stock series B, $0.001 par value,
Authorized: 10,000,000 -- --
Common Stock, $0.001 par value, Authorized: 200,000,000
Issued: 29,540,298 and 29,005,298 as of November 30, 2012
and May 31, 2012, respectively 29,540 29,005
Common Stock Payable 818,000 738,000
Preferred series B stock payable 6,000,000 --
Additional paid-in capital 32,189,705 31,499,031
Deficit during development stage (8,121,732) (5,972,579)
Accumulated deficit (26,850,830) (26,850,830)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 4,064,733 (557,326)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,188,756 $ 93,850
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
DOMARK INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the cumulative
period during the
Development Stage from
Three Months Ended Six Months Ended October 21, 2009 to
November 30, November 30, November 30, November 30, November 30,
2012 2011 2012 2011 2012
------------ ------------ ------------ ------------ ------------
Revenues $ 16,193 $ -- $ 36,538 $ -- $ 56,467
Cost of sales 6,164 -- 29,141 -- 77,650
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 10,029 7,397 (21,183)
General and administrative expenses 306,473 171,875 539,297 271,154 1,670,046
Consulting expense -
stock-based compensation 169,056 -- 436,050 -- 4,322,360
Wages & salaries -
stock-based compensation 127,855 240,536 271,411 268,689 1,009,411
Amortization of license fee 500,000 -- 894,520 -- 894,520
Depreciation expense 364 1,930 2,983 3,898 13,821
Bad debt expenses 456 -- 1,456 -- 101,456
Impairment of assets -- -- -- -- 10,000
Impairment of goodwill -- -- -- -- 10,000
Forgiveness of debt (24,197) -- (24,197) -- (28,197)
Research & development -- -- -- -- 45,609
------------ ------------ ------------ ------------ ------------
Operating loss (942,123) (413,341) (2,114,123) (543,741) (8,070,209)
Other Income -- -- -- -- 29,567
Interest expense (20,231) (4,451) (35,030) (13,189) (81,090)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (962,354) $ (418,792) $ (2,149,153) $ (556,930) $ (8,121,732)
============ ============ ============ ============ ============
Net Loss per share, basic
and diluted $ (0.03) $ (0.01) $ (0.07) $ (0.02)
============ ============ ============ ============
Weighted average common shares
outstanding 29,540,298 37,090,166 29,508,922 36,990,434
------------ ------------ ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
5
DOMARK INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the cumulative
period during the
Development Stage from
Six Months Ended October 21, 2009 to
November 30, November 30, November 30,
2012 2011 2012
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,149,153) $ (556,930) $ (8,121,732)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,983 3,898 13,821
Amortized finance cost 24,799 -- 60,000
Common stock issued as compensation and for expenses 707,461 268,689 5,331,771
Amortization of prepaid license fee 894,520 -- 894,520
Impairment of Assets -- -- 10,000
Forgiveness of debt (24,197) -- (28,197)
Changes in Operating assets and liabilities:
Inventory - tv production -- (16,926) --
Prepaid services and expenses 605 (33,000) 605
Accounts payable and accrued expenses -- 66,415 --
Bad debt -- -- 1,000
Non cash interest -- -- 5,645
(Increase)/Decrease in inventory -- -- (16,926)
Increase in Accounts payable 330,777 -- 569,712
Increase/(Decrease) in Accounts payable - related party 8,831 -- 24,197
------------ ------------ ------------
Net cash used in operating activities (203,374) (267,854) (1,256,584)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for licensing -- -- (35,000)
Cash paid for furniture & equipment -- -- (4,000)
Cash Paid for Web Development -- (4,000) (7,500)
------------ ------------ ------------
Net cash flows used in investing activities -- (4,000) (46,500)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable - related parties (1,000) -- (126,478)
Payments made on notes payable -- -- (100,470)
Proceeds received from shareholder loans 158,437 156,983 1,052,837
Proceeds received from notes payable -- 125,000 480,000
------------ ------------ ------------
Net cash provided by financing activities 157,437 281,983 1,305,889
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (45,937) 10,129 2,805
Cash and cash equivalents - beginning balance 52,269 4,587 3,527
------------ ------------ ------------
CASH BALANCE END OF PERIOD $ 6,332 $ 14,716 $ 6,332
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for prepaid expenses $ (63,145) $ 250,000 $ (63,145)
Prepaid license fee $ 6,000,000 $ -- $ 6,000,000
Prepaid expenses $ -- $ -- $ (397,675)
Inventory $ -- $ -- $ (16,926)
Fixed assets, net of
depreciation $ -- $ -- $ (3,868)
Website costs, net of amortization $ -- $ -- $ (1,167)
License, net of amortization $ -- $ -- $ (24,432)
Accounts payable $ -- $ -- $ 19,257
Payroll & related liabilities $ -- $ -- $ 249,631
Due to affiliate and shareholder $ -- $ -- $ 929,738
Return of preferred shares, par value $ -- $ -- $ 50
Return of common stock, par value $ -- $ -- $ 9,772
Additional capital contributed in excess of net assets sold $ -- $ -- $ (764,380)
The accompanying notes are an integral part of these
consolidated financial statements.
6
DOMARK INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended November 30, 2012
NOTE 1. DESCRIPTION OF BUSINESS
DOMARK INTERNATIONAL INC. ("Domark" or the "Company") was incorporated under the
laws of the State of Nevada on March 30, 2006. In 2008, the Company embarked on
a business plan that was intended to acquire profitable businesses that would
create shareholder value in diverse industries. During 2008 and 2009, the
Company acquired several operating businesses, as set forth in various Current
Reports on Form 8-K filed with the Securities and Exchange Commission. On May
21, 2009, the Company closed an acquisition pursuant to an Agreement for the
Exchange of Common Stock (the "Victory Lane Agreement") with Victory Lane
Financial Elite, LLC ("Victory Lane") with respect to a real estate lifestyle
business known as "Victory Lane" (the "Victory Lane Business"). Shortly
thereafter, a dispute arose between the Company and the principals of Victory
Lane regarding the representations of the principals of Victory Lane and the
Victory Lane Business and the Victory Lane Agreement. Litigation between the
Company and various parties pertaining to the Victory Lane Business remains
outstanding. (Refer to Notes 7 - Contingencies & Item II, Other Information
below).
HISTORY & GENERAL OVERVIEW
On February 29, 2012, the Company formed a new wholly owned subsidiary,
Solawerks Inc. in the state of Nevada, for the purposes of entering the business
of marketing specialized solar consumer electronics. Solawerks' current focus is
to develop and distribute the SolaPad: a combined cover and charging system for
Apple's iPad, and the SolaCase: a combined cover and charging system for all
versions of Apple's iPhone. Solawerks competes in a market that also includes 3D
Systems (DDD), Dell (DELL) and Hewlett Packard (HPQ).
During the last half of 2009, the Company sold two of its operating
subsidiaries, Javaco Inc. and ECFO Corporation and effected rescissions of
acquisition transactions on the remainder of its operating businesses. Between
October 2009 and May 2011, the Company had no material ongoing operations. The
business of the Company during the period from October 2009 through May 2011 was
to seek out new acquisitions and to conduct the litigation with Victory Lane.
On May 31, 2011, the Company formed a wholly owned subsidiary, Armada Sports &
Entertainment, Inc. Armada is a sports marketing and Management Company engaged
in owning, developing, and conducting made-for-television sports and
entertainment events. On March 5, 2012, the Company entered into an Asset
Purchase Agreement with its then controlling shareholder, R. Thomas Kidd, for
the sale of Armada, and certain assets related thereto.
On March 5, 2012, the Company entered into an Asset Purchase Agreement with its
then controlling shareholder, R. Thomas Kidd, for the sale of Armada, and
certain assets related thereto.
On May 26, 2012, the Company hired a new Chairman and President Brent Strasler.
He then hired a new Chief Executive Officer Andrew Ritchie on 12 June 2012. The
Company then strengthened the executive team by adding Patrick Johnson as VP -
business development.In June 2012, the Company entered into a retail sales
strategy with North American retail specialist Chic and Savvy. During the 1st
quarter, they attended many retail sales exhibitions throughout Canada.
On June 20, 2012, the Company formed a new wholly owned subsidiary, Musclefoot
Inc. in the state of Nevada for the purpose of distributing, marketing, and
acting as sales agent for the patented foot care system, Barefoot Science. This
entity is currently in default under the Nevada Secretary of State.
On July 20, 2012, the Company formed a new wholly owned subsidiary, Domark
Canada Inc. in the province of Ontario for the purpose of supporting the
corporate operations based in Toronto, Ontario, Canada.
The Company then endorsed world champion triple jumper Will Claye, and US
Olympian Nick Simmons prior to the London 2012 Olympic Games. This was part of a
strategy to obtain global exposure and align brands with world class sports
professionals. We then sponsored several UFC championship contenders.
7
During the Quarter Hui Shi You of China, the Company's supplier of old solar
chargers, gave notice that our exclusivity had been revoked. The Company
commissioned the design of new and improved Apple iPhone and iPad infra-red and
solar powered products. These newly designed products encompass the latest
technology available and will be available for all iPhones, iPads and Samsung
Galaxy 3 PDA's. The Company has successfully tested these new products in the
market with great success and customer and retailer feedback. Patents are
pending for all new products and full market rollout is scheduled for early
2013.
During the Quarter, the Company's Sports Management Team, representing its
patented shoe insole product, entered into discussions with several
international sports footwear manufacturers. Much progress has been made as
talks continue.
Management and the Company's Corporate Lawyers have undertaken a detailed review
of all shares issued by previous management. During this review, counsel has put
in a place an administrative hold on these shares.
As a result of the change in the Company's business model, the disclosures and
financial results contained herein should be reviewed as they relate to the
Company's historical operations but should be discounted as they relate to the
Company's potential future results.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern. The Company has
consolidated losses from operations of ($962,354) for the 3 months ending
November 30, 2012 compared to a loss of ($418,792) for the same period ending
November 30, 2011. There is an accumulated deficit of ($34,972,562) as at
November 30, 2012, and a net loss of ($2,149,153) for the six months then ended.
Furthermore, the Company has inadequate working capital to maintain or develop
its operations, and is dependent upon funds from private investors and the
financial support of certain stockholders.
These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this uncertainty. In this
regard, management is planning to raise any necessary additional funds through
loans and additional sales of its common stock. There is no assurance that the
Company will be successful in raising additional capital.
NOTE 3. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") for financial information and the rules and regulations of
the Securities and Exchange Commission ("SEC"). In the opinion of management,
all adjustments, consisting of normal recurring accruals considered necessary
for a fair presentation, have been included. Operating results for the three
months ended November 30, 2012 are not necessarily indicative of the results
that may be expected for the year ending May 31, 2013.
NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RECENT ACCOUNTNG
PRONOUNCEMENTS
The Company has reviewed recently issued accounting pronouncements and plans to
adopt those that are applicable to it. It does not expect the adoption of these
pronouncements to have a material impact on its financial position, results of
operations or cash flows.
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined in ASC Standard 915-10-05
and has recognized limited revenue and devotes substantially all of its efforts
on establishing its online retail and product development business. Its planned
principal operations in advancing its online product development business have
commenced. All losses accumulated since inception have been considered a part of
the Company's development stage activities.
8
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. These estimates and assumptions also
affect the reported amounts of revenues, costs and expenses during the reporting
period. Management evaluates these estimates and assumptions on a regular basis.
Actual results could differ from those estimates.
The primary management estimates included in these financial statements is the
licensing fees, stock option valuation and the fair value of its stock tendered
in various non-monetary transactions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At November 30, 2012, cash and cash
equivalents included cash on hand and cash in the bank.
INVENTORIES
Inventories consist of retail products which are stated at the lower of cost or
market. Cost is determined by the specific identification method. All Solarwerks
inventory were considered unsellable and subsequently returned to the
manufacturer. Remaining inventory on the books was written off and any payables
owing to the manufacturer have been offset against monies paid to date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash,
accounts payable, and accrued expenses approximate the respective fair values
due to the short maturities of these items.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements represent the consolidated financial
position and results of operations of the Company and include the accounts and
results of operations of the Company and its subsidiaries. The accompanying
financial statements include the active entity of Domark International, Inc. and
its wholly owned subsidiaries, Musclefoot Inc., Solawerks Inc and Domark Canada
Inc. The Company has relied upon the guidance provided by Statements of
Financial Accounting Standards, ASC 810-10-15-3.
STOCK-BASED COMPENSATION
The Company accounts for share based payments in accordance with ASC 718,
Compensation - Stock Compensation, which requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on the grant date fair value of the award. In
accordance with ASC 718-10-30-9, Measurement Objective - Fair Value at Grant
Date, the Company estimates fair value of the award using a valuation technique.
For this purpose, the Company uses the Black-Scholes option pricing model. The
Company believes the model provides the best estimate of fair value due to its
ability to incorporate inputs that change over time, such as volatility and
interest rates, and to allow for actual exercise behavior of option holders.
Compensation cost is recognized over the requisite service period which is
generally equal to the vesting period. Upon exercise, shares issued will be
newly issued shares from authorized common stock.
ASC 505, "Compensation-Stock Compensation", establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
to non-employees for goods or services. Under this transition method, stock
compensation expenses includes compensation expense for all stock-based
compensation awards granted on or after January 1, 2006, based on the grant-date
fair value estimated in accordance with provisions of ASC 505.
9
NET LOSS PER COMMON SHARE
The Company computes net loss per share in accordance with the Earning per Share
Topic of the FASB ASC 260. Under the provisions of ASC, basic net loss per share
is computed by dividing the net loss available to common stockholders for the
period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share gives effect to
common stock equivalents; however, potential common shares are excluded if their
effect is anti-dilutive. As of November 30, 2012, options and warrants were
outstanding and have been valued using Black-Scholes.
RECLASSIFICATIONS
Certain reclassifications to separate General and administration expenses to
conform to the presentations used in the quarter ended November 30, 2012 have
been made in prior year's consolidated financial statements, none of which had
any effect on previously reported net income or loss, or related per share
amounts, of any period.
RESEARCH AND DEVELOPMENT
All research and development expenditures are expensed as incurred. R&D costs
incurred during the Quarter included the design and development of new Solawerks
products, media test campaigns, design of websites and structuring affiliate
programs.
REVENUE RECOGNITION
The Company recognizes revenues when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
or determinable, and collection of the resulting receivable is reasonably
assured. Inventory is capitalized and costs of sales are recognized during the
period in which the sales occurred. The Company derived its revenues for the six
month period through internet sales of our solar charging units of $16,294 and
Barefoot insoles of $20,244. The Company recognized these sales once delivery is
made from the warehouse (FOB shipping point).
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with ASC Standard 360-10-40, long-lived assets, such as property,
plant, and equipment, and purchased intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Goodwill and other intangible assets are tested
for impairment annually. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.
NOTE 5. RELATED PARTY TRANSACTIONS
On May 25, 2012, the Company entered into an employment agreement with an
effective date of June 1, 2012 with its newly appointed President, Brent
Strasler, for a period of no less than three years. Mr. Strasler is entitled to
an annual salary of $150,000 and 100,000 stock purchase warrants exercisable to
purchase common shares of the Company at $1.00 per share. The warrants are
exercisable for a three year period and can be vested quarterly on a pro rata
basis over twelve months from the date of issue. Additionally, Mr. Strasler will
be enrolled in a long term Executive Option Plan no later than three months
after the effective date of the employment agreement and is entitled to term
life insurance in the face amount of $2,500,000, payable to the beneficiary
designated by Mr. Strasler. The warrants awarded have been valued in accordance
with ASC 718-10-30-9, Measurement Objective - Fair Value at Grant Date. The
grant date fair value of the 100,000 warrants was estimated using the
Black-Scholes option pricing model to be $262,000. The assumptions used were:
expected dividend yield of 0.41%; expected volatility of 544%; risk free
interest rate of 0%; and expected term of 3 years. The Company expensed $65, 346
in the quarter ended November 30, 2012 and $130,641 in the six month period
ended November 30, 2012, with $131,359 remaining to be expensed.
10
On June 12th, 2012, the Company entered into an employment agreement with an
effective date of June 12, 2012 with its newly appointed Chief Executive
Officer, Andrew Ritchie, for a period of no less than three years. Mr. Ritchie
is entitled to an annual salary of $240,000 and 150,000 stock purchase warrants
exercisable to purchase common shares of the Company at $1.00 per share. The
warrants are exercisable for a three year period and can be vested quarterly on
a pro rata basis over twelve months from the date of issue. Additionally, Mr.
Ritchie will be enrolled in a long term Executive Option Plan no later than
three months after the effective date of the employment agreement and is
entitled to term life insurance in the face amount of $2,500,000, payable to the
beneficiary designated by Mr. Ritchie. The warrants awarded have been valued in
accordance with ASC 718-10-30-9, Measurement Objective - Fair Value at Grant
Date. The grant date fair value of the 150,000 warrants was estimated using the
Black-Scholes option pricing model to be $196,500. The assumptions used were:
expected dividend yield of 0.37%; expected volatility of 538%; risk free
interest rate of 0%; and expected term of 3 years. The Company expensed $49,022
in the quarter ended November 30, 2012 and $90,444 in the six month period ended
November 30, 2012, with $106,056 remaining to be expensed.
On June 26th, 2012, the Company entered into an employment agreement with an
effective date of June 1, 2012 with its newly appointed Vice-President of
Corporate Development, Patrick Johnson, for a period of no less than three
years. Mr. Johnson is entitled to an annual salary of $84,000 and 100,000 stock
purchase warrants exercisable to purchase common shares of the Company at $1.00
per share. The warrants are exercisable for a three year period and can be
vested quarterly on a pro rata basis over twelve months from the date of issue.
Additionally, Mr. Johnson will be enrolled in a long term Executive Option Plan
no later than three months after the effective date of the employment agreement
and is entitled to term life insurance in the face amount of $2,500,000, payable
to the beneficiary designated by Mr. Johnson. The warrants awarded have been
valued in accordance with ASC 718-10-30-9, Measurement Objective - Fair Value at
Grant Date. The grant date fair value of the 100,000 warrants was estimated
using the Black-Scholes option pricing model to be $117,000. The assumptions
used were: expected dividend yield of 0.42%; expected volatility of 537%; risk
free interest rate of 0%; and expected term of 3 years. The Company expensed
$29,188 in the quarter ended November 30, 2012 and $50,326 in the six month
period ended November 30, 2012, with $66,674 remaining to be expensed.
On September 1, 2012, Domark Canada entered into separate consulting agreements
with the Domark International Executive team on an as needed basis. The
consultants will receive a maximum of $1,000 per day based on an hourly rate of
$100 per hour.
As of November 30, 2012, the company has received additional loans in the
amounts of $49,470 USD and $108,967 USD from a shareholder of the Company.
NOTE 6. SHAREHOLDERS' DEFICIT
* On May 25, 2012, - R Brentwood Strasler was appointed as Chairman and
President / Director, with an annual compensation of $150,000 and 150,000 share
options at $1.00 which will vest in one year on a quarterly basis. The Company
valued the options using the Black-Scholes valuation model. As of the grant date
the options were valued at $262,000 with $65, 346 being expensed in the quarter
ended November 30, 2012 and $130,641 being expensed in the six month period
ended November 30, 2012.
* On May 28, 2012 - Ian Nuttall received an additional 800,000 shares as a
consultant to Domark of Rule 144 common `A' stock in Domark International Inc.
valued at $2,304,000 with $0 being expensed in the quarter ended November 30,
2012 and $0 being expensed in the six month period ended November 30, 2012.
* On Jun 18, 2012, - Andrew Ritchie was appointed as Chief Executive Officer/
Director with an annual Compensation of $240,000 and 250,000 share options at
$1.00 which will vest in one year on a quarterly basis. The Company valued the
options using the Black-Scholes valuation model. As of the grant date the
options were valued at $196,500 with $49,022 being expensed in the quarter ended
November 30, 2012 and $90,444 being expensed in the six month period ended
November 30, 2012.
* On June 21, 2012, - Domark signed a contract with Barefoot-Science to become
exclusive marketing direct sales distributor for North America. Barefoot -
Science will be issued 2,500,000 shares of Preferred B shares of Domark
International Inc. which are convertible at any time at request of holder into
common A shares at a 1 Preferred Series B into 2 Common shares ratio. Shares
will hold a six month restriction under 144 rules. The shares have been valued
11
at $6,000,000 USD which will be expensed over the term of the agreement (3
years). As of November 30, 2012 $500,000 has expensed in the quarter ended
November 30, 2012 and $894,520 has been expensed in the six month period ended
November 30, 2012.
* On June 26, 2012, - Patrick Johnson was appointed as Vice President of
Business Development, with an annual compensation of $84,000 and 100,000 share
options at $1.00 which will vest in one year on a quarterly basis. The Company
valued the options using the Black-Scholes valuation model. As of the grant date
the options were valued at $117,000 with $29,188 being expensed in the quarter
ended November 30, 2012 and $50,326 being expensed in the six month period ended
November 30, 2012.
* On June 26, 2012, RBL were appointed to look after all Domark Social media
campaigns. They were awarded a contract of $1,000 a month and were granted
20,000 free trading shares in Domark international valued at $23,400 with $0
being expensed in the quarter ended November 30, 2012 and $23,400 being expensed
in the six month period ended November 30, 2012.
* On July 11, 2012 - Ian Nuttall received an additional 425,000 shares as a
consultant to Domark of Rule 144 common `A' stock in Domark International Inc.
valued at $382,500 with $0 being expensed in the quarter ended November 30, 2012
and $382,500 being expensed in the six month period ended November 30, 2012.
On July 19, 2012, - Domark signs Five-Time American 800 m Champion Nick Symmonds
to endorse Domark products for compensation of 100,000 shares of rule144 common
A stock in Domark International Inc. valued at $68,000 with $17,000 being
expensed in the quarter ended November 30, 2012 and $25,500 being expensed in
the six month period ended November 30, 2012.
* On July 25, 2012, - Domark signs Will Claye to endorse Domark products for
compensation of 50,000 shares of rule144 common A stock in Domark International
Inc. valued at $34,000 with $8,500 being expensed in the quarter ended November
30, 2012 and $12,750 being expensed in the six month period ended November 30,
2012.
* On December 11, 2012 - Ian Nuttall received an additional 775,000 shares as a
consultant to Domark of Rule 144 common `A' stock in Domark International Inc.
valued at $143,375 with $0 being expensed in the quarter ended November 30, 2012
and $0 being expensed in the six month period ended November 30, 2012.
Our common stock is traded in the over-the-counter market, and quoted in the
National Association of Securities Dealers Inter-dealer Quotation System
("Electronic Bulletin Board) and can be accessed on the Internet at
www.otcbb.com under the symbol "DOMK.OB".
As of November 30, 2012, there were 29,540,298 shares of our common stock
outstanding and 50,000 shares of Preferred Series A (1000:1 conversion) and
2,500,000 shares of Preferred Series B (2:1 conversion). There were
approximately 84 shareholders of record of the Company's common stock.
NOTE 7. CONTINGENCIES
* On May 21, 2009, the Company entered into that certain Agreement for the
Exchange of Common Stock (the "Victory Lane Agreement") with Victory Lane
Financial Elite, LLC ("Victory Lane") with respect to a real estate lifestyle
business known as Victory Lane (the "Victory Lane Business") pursuant to which
the Company intended to purchase the Victory Lane Business. Shortly thereafter,
a dispute arose between the Company and Victory Lane regarding alleged
misrepresentations made by Victory Lane in connection with the Victory Lane
Agreement.
* In August, 2009, Victory Lane Financial Elite, LLC, Legacy Development, LLC
and Patrick Costello filed suit in the Superior Court of Tattnall County,
Georgia (Civ. No. 2009-V-381-JW) against the Company, R. Thomas Kidd and various
officers and directors of the Company, alleging that the Company was in breach
of the Victory Lane Agreement and that the Company and certain of the individual
defendants had committed various torts against the plaintiffs and that certain
of the individual defendants had violated various fiduciary and other duties
owed to the plaintiffs in connection with the Victory Lane Agreement and the
handling of the Victory Lane Business (the "VLFE Case"). The plaintiffs sought a
declaratory judgment to the effect that the Victory Lane Agreement had not been
executed, as well as money damages from the Company and the individual
defendants. The Company and Mr. Kidd have answered the Complaint, denying any
12
liability for the plaintiff's claims and have asserted various counterclaims
including fraud and other torts. In July 2010 the court dismissed all of the
individual defendants, other than R. Thomas Kidd, in response to a motion to
dismiss for lack of jurisdiction. The case has since been stayed.
* In December, 2009, AHIFO-21, LLC filed a lawsuit in the Superior Court of
Tattnall County, Georgia (Civ. No. 2009-V-672-JS) against Victory Lane, LLC,
Patrick J. Costello and Stephen Brown (the "Victory Lane Defendants") alleging
that the Victory Lane Defendants owe the plaintiff more than $7,740,000 in
respect of one or more loans made by the plaintiff to certain of the Victory
Lane Defendants in connection with the Victory Lane Business (the "AHIFO Case").
In February, 2010, the Victory Lane Defendants filed a Third Party Complaint
against the Company and R. Thomas Kidd, claiming that the Company and Mr. Kidd
should be liable for any amounts the Victor Lane Defendants are required to pay
to the plaintiff in this case. The Company and Mr. Kidd have answered the
Complaint, denying any liability for the plaintiff's claims and have asserted
various counterclaims including fraud and other torts. The Company and Mr. Kidd
filed a motion to dismiss the Third Party Complaint, but the entire case was
subsequently stayed.
* Because each of the VLFE Case and the AHIFO Case have been stayed and because
discovery in those cases is not complete, the Company has not reached a
determination that any loss is other than remote and that the amount of any
damages, if any were determined adverse to the Company, would be reasonably
estimable. The Company believes that it has meritorious claims against the
opposing parties with respect to the Victory Lane Agreement and that the claims
asserted against it are not meritorious. The Company intends to defend itself
vigorously.
NOTE 8. COMMITMENTS
* On July 16, 2012, - Leading specialist Sports Physio was appointed to Domarks
advisory committee with a signing agreement of $10,000.
* On June 28, 2012, - Domark donates a Noraxon foot Scanner to Sean Penna to
assist in the training of the U.S Olympic team. The machine cost $19,495, and is
being purchased through a rental buy agreement of $895 a month.
NOTE 9. LIABILITIES & NOTES PAYABLE
On February 29, 2012, Company entered into a Promissory Note with R. Thomas
Kidd, our then Chief Executive Officer of the Company, and Infinite Funding,
Inc. ("IFI"). This Note replaces four promissory notes issued by IFI to the
Company as more fully described below.
Effective March 3, 2011, we obtained an unsecured loan in the amount of $75,000
from Infinite Funding, Inc. ("IFI") as evidenced by a Promissory Note from the
Company to Infinite Funding, Inc. dated March 3, 2011 (the "IFI Note"). The Note
was amended three times to extend the due date and was first amended on June 9,
2011, a second time on September 28, 2011, and a third amendment on December 9,
2011. Pursuant to the amendments, the Company agreed to pay extension fees of
$30,000, thereby increasing the principle balance of this Note to $105,000.
Effective June 10, 2011, we obtained an unsecured loan in the amount of $75,000
from Infinite Funding, Inc. ("IFI") as evidenced by a Promissory Note from the
Company to Infinite Funding, Inc. dated June 10, 2011 (the "IFI Note"). The Note
was amended two times to extend the due date and was first amended on September
28, 2011 and again on December 9, 2011. Pursuant to the amendments, the Company
agreed to pay extension fees of $20,000, thereby increasing the principle
balance of this Note to $95,000.
Effective September 28, 2011, we obtained an unsecured loan in the amount of
$40,000 from Infinite Funding, Inc. ("IFI") as evidenced by a Promissory Note
from the Company to Infinite Funding, Inc. dated September 28, 2011 (the "IFI
Note"). The Note was amended to extend the due date on December 9, 2011.
Pursuant to this amendment, the Company agreed to pay an extension fee of
$10,000, thereby increasing the principle balance of this Note to $50,000.
Effective December 9, 2011, we obtained an unsecured loan in the amount of
$100,000 from Infinite Funding, Inc. ("IFI") as evidenced by a Promissory Note
from the Company to Infinite Funding, Inc. dated December 9, 2011 (the "IFI
Note").
13
As a result of consolidating the aforementioned debt, the Company is now
obligated under a single Promissory Note dated February 29, 2012 in the
aggregate principle amount of $355,645 along with $2,689 in accrued interest.
The Note is due on October 15, 2012 and accrues interest at 3% per annum. In
addition, R Thomas Kidd executed a Personal Guarantee of the Note, whereby Kidd
guarantees the payment of $100,000 of the principle balance in an Event of
Default pursuant to Article III of the Note. As of November 30, 2012 the note is
in default and the interest rate has increased to a default interest rate of
18%.
MASTER CREDIT AGREEMENTS
On March 2, 2012, the Company entered into a Master Credit Agreement with
Infinite Funding, Inc. which provides for a non-revolving line of credit. The
Company may request advances under the lending facility by issuing borrowing
certificates to the Lender. Each borrowing certificate, together with simple
interest accrued at 8% per year, becomes payable one year after the date of the
advance received. Infinite Funding has amended the Master Credit Agreement,
increasing the amount of the Lending Facility from $150,000 to $200,000. As of
November 30, 2012, the Company received $190,000 in advances and the Company has
accrued $1,375 in interest.
As of November 30, 2012, the company has received additional loans in the
amounts of $49,470 USD and $108,967 USD from a shareholder of the Company.
NOTE 10. DEBT FORGIVENESS
On February 29, 2012 the Company executed a Memorandum of Agreement with Xiamen
Tiauyang Neng Gongsi and Michael Franklin related to the acquisition of certain
exclusive worldwide licensing and joint patent rights. All old inventory was
returned to the manufacturer during the quarter and all monies paid by Domark to
XSE in the past have been applied against all outstanding payables owing to XSE.
As of November 30, 2012 the Company recorded debt forgiveness in the amount
$24,197 for returned inventory to Xiamen Tiauyang Neng Gongsi as payment for all
outstanding debt.
NOTE 11 - WARRANTS AND OPTIONS
During the six months ended November 30, 2012, the Company issued a total of
350,000 warrants to the officers of the Company, the warrants vest on a
quarterly basis over twelve months from the date of the issuance. See Note 5.
The following is a summary of the status of all of the Company's stock warrants
as of November 30, 2012 and changes during the six months ended on that date:
Number of Weighted-Average
Warrants Exercise Price
-------- --------------
Outstanding at June 1, 2012 -- $1.00
Granted 350,000 $1.00
Exercised -- $0.00
Cancelled -- $0.00
------- -----
Outstanding at November 30, 2012 350,000 $1.00
======= =====
Warrants exercisable at November 30, 2012 350,000 $1.00
======= =====
Warrants exercisable at November 30, 2011 -- $0.00
======= =====
14
The following table summarizes information about stock warrants outstanding and
exercisable at November 30, 2012:
STOCK WARRANTS OUTSTANDING AND EXERCISABLE
------------------------------------------
Remaining Weighted-Average
Number of Warrants Contractual Weighted- Average
Exercise Price Outstanding Life in Years Exercise Price
-------------- ----------- ------------- --------------
$ 1.00 350,000 2.54 $ 1.00
NOTE 12. SUBSEQUENT EVENTS
* On December 11, 2012 - Ian Nuttall received an additional 775,000 shares as a
consultant to Domark of Rule 144 common `A' stock in Domark International Inc.
valued at $143,375.
* On October 1, 2012, - James Kerr was appointed as Chief Financial Officer. The
Company has not finalized James' employment contract as of the date of these
financial statements.
15
ITEM 2 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected our financial position and operating results during
the periods included in the accompanying consolidated financial statements, as
well as information relating to the current plans of our management. This report
includes forward-looking statements. Generally, the words "believes",
"anticipates", "may", "will", "should", "expect", "intend", "estimate",
"continue", and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to update these forward-looking statements.
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-Q.
RECENT DEVELOPMENTS
The Second Quarter represents a turning point in the Company's progress as
management continued to review operations and restructuring initiatives. The
main operations of the company have been the sale of our Apple iPhone and iPad
solar battery charging covers through our subsidiary Solawerks and our licensed,
patented and FDA approved shoe insole from Barefoot Science Inc.
The Company has spent the second quarter restructuring the company and testing
various media platforms for the effective sales execution of our products. This
included building our product websites and designing and structuring our
affiliate programs. During the Quarter the company ceased to sell our old models
of the Solawerks product line and commissioned the design and manufacturing of a
new infra red and solarly charged cases for the iPhone, iPad and Samsung Galaxy
3 product line. These new products were tested with great success and full
launch is expected in the beginning of 2013.
During the Quarter, management also asked our legal team to review all
outstanding shares issued by the old management team that were due to be
released in this Quarter. Our lawyers put an administrative hold on these shares
while each case was individually reviewed for justification of issuance.
Management continued to review the Company's past financial history, including
share and debt structure, and has made tremendous progress in ensuring that the
best capital structure is utilized going forward.
On February 29, 2012, the Company formed a new wholly owned subsidiary,
Solawerks, Inc. in the state of Nevada, for the purposes of entering the
business of marketing specialized solar consumer electronics.
On February 29, 2012, the Company entered into a Memorandum of Agreement with
Xiamen Taiyang Neng Gongsi and Michael Franklin. For and in consideration of the
payment of an initial license fee of $10,000, and for the future payment of
royalties, Xiamen granted an exclusive worldwide license and joint patent rights
to Domark International, Inc. for a solar charging case for IPAD, including
IPAD3. There is no prior business relationship with Xiamen, or any of its
officers or directors. As of November 30, 2012 the exclusive rights were revoked
and became non-exclusive.
On March 5, 2012, the Company entered into an Asset Purchase Agreement with its
controlling shareholder, R. Thomas Kidd, for the sale of its wholly owned
subsidiary, Armada/The Golf Championships, and certain assets related thereto.
As consideration, the Mr. Kidd returned 9,771,500 shares of common stock to
treasury.
16
On March 5, 2012, Michael Franklin purchased 50,000 shares of the Company's
Series A Preferred Stock from R Thomas Kidd. Our Series A Preferred Stock is
convertible into Common Stock at the rate of 1,000 shares of Common for each
share of Preferred. In addition, our Preferred stock has voting rights
equivalent to 1,000 votes per share. Upon the conclusion of the Armada
transaction, Franklin became the controlling shareholder of Domark by virtue of
his ownership of 50,000 shares of Preferred Stock with voting rights equivalent
to 50,000,000 shares of our Common Stock.
On March 5, 2012, the Company's Shareholders appointed Michael Franklin as sole
Director, CEO and Corporate Secretary. Mr. Franklin will serve as a director
until his successor has been elected at the next annual meeting of the Company's
shareholders or until his earlier resignation, removal, or death. Mr. Franklin
has not been appointed to any committees of the Board, as the Board does not
presently have any committees.
On March 29, 2012, our prior CEO, Tom Kidd, returned to the Company's treasury,
50,000 shares of its Series A Preferred Stock and 9,771,500 shares of its Common
Stock. These shares were then cancelled. There are 50,000 issued and outstanding
shares of the Company's Series `A' Preferred Stock, owned by the Company's CEO,
Michael Franklin.
Effective May 25, 2012, Michael Franklin, Chairman and CEO the Company, resigned
from all positions held with the Company, including resigning from Board
service. There was no disagreement between the Registrant and Mr. Franklin at
the time of his resignation from the Board of Directors.
On May 25, 2012, the Company's Shareholders appointed Brent Strasler as
Director, President and Corporate Secretary.
On June 1, 2012, the Company hired Andrew S. Ritchie as Chief Executive Officer.
On June 1, 2012, the Company hired Patrick Johnson as Vice-President of Business
Development.
On June 20, 2012, the Company signed a long term 3 year license agreement with
Barefoot Science. The agreement provided Barefoot with 2,500,000 shares of
Series B preferred shares convertible to 2 shares of common for every preferred
share held in exchange for rights to Barefoot Science technologies.
On October 31st, 2012, C.E.O. Andrew Ritchie was appointed President of the
Company with Brent Strasler remaining with the company as Non-Executive
Chairman.
On October 1st, 2012, James Kerr, CMA was hired as Chief Financial Officer of
the Company. The Company has not finalized James' employment contract as of the
date of these financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Our operating requirements have been funded primarily through financing
facilities, sales of our common stock, and loans from shareholders. Currently
the Company's cash flows do not adequately support the operating expenses of the
Company. We received $0 in fiscal years 2012 and 2011 from the sale of our
common stock. The Company will continue to require financing from loans and
notes payable until such time our business has generated income sufficient to
carry our operating costs.
Cash used by operating activities for the six month period ending November 30,
2012 was ($203,374) compared to $(267,854) for the same period 2011.
Depreciation and amortization expense for the six months period was $2,983 as
compared to $3,898 for the period ending November 30, 2011.
Cash used in investing activities was $0 for the six month period ending
November 30, 2012 compared to $(4,000) for the period ending November 30, 2011.
Cash provided by financing activities was $157,437 for the period versus
$281,983 for the six month period ending November 30, 2011. Financing activities
consisted of cash received from shareholders and notes payable.
17
OTHER CONSIDERATIONS
There are numerous factors that affect the Company's business and the results of
its operations. Sources of these factors include general economic and business
conditions, federal and state regulation of business activities, the level of
demand for services, the level and intensity of competition in the, and our
ability to continue to improve our infrastructure, including personnel and
systems, to keep pace with our anticipated rapid growth in the development of
our business.
RESULTS OF OPERATIONS
QUARTER ENDED NOVEMBER 30, 2012
The Company had $16,193 in total revenues for the quarter ended November 30,
2012. Revenues earned for the period were related to sales through the Company's
wholly owned subsidiaries Musclefoot Inc. $15,651 and Solawerks Inc. $542. The
same period in 2011 resulted in zero revenue for the Company.
During the quarter, all iPad inventory held by Solawerks was returned to XSE to
be replaced with the new iPhone and iPad products developed by Solawerks.
Remaining inventory on the financials was written off against any payables owing
to the manufacturer in the form of monies paid to date to the manufacturer, XSE.
General and administrative expenses for the quarter increased from $232,824 in
the first quarter to $306,473 in the second. The increase is primarily related
to increased operating costs for Domark International during the 3 month period
ending November 30, 2012 when compared to the 3 months ending August 30, 2012.
The net loss for the quarter amounted to ($962,354) and a net loss per share of
$0.03 vs. a net loss of ($418,792) and a net loss per share of $0.01 for the
same 3 month period in 2011.
SIX MONTHS ENDED NOVEMBER 30, 2012 VS. NOVEMBER 30, 2011
General and administrative expenses for the six months ended November 30, 2012
were $539,297 compared to $271,154 for the same six month period in 2011. The
increase is primarily related to the Company incurring significant expense in
stock compensation and advertising relating to the development of Solawerks Inc.
and Musclefoot Inc., the Company's wholly owned subsidiaries. The Company's
operations during fiscal 2012 were funded through interest free, demand notes
from shareholders and short term loans financed through Infinite Funding. As of
November 30, 2012, the Company is indebted to a shareholder in the amount of
$158,437 and to Infinite Funding in the aggregate of $545,645 plus interest.
The operating loss for the six months ending November 2012 amounted to
(2,114,123) vs a loss of (543,741) ending November 2011. This translates to a
Net loss per share of 0.07 for the period ending Novermber 2012 and a Net loss
per share of 0.02 for the same six month period ending November 2011.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
18
ITEM 4 - CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management team, under the supervision and with the participation of our
principal executive officer and our principal financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), as of the last day
of the fiscal period covered by this report, November 30, 2012. The term
disclosure controls and procedures means our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to management, including our principal executive and principal
financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Based on this evaluation,
our principal executive officer and our principal financial officer concluded
that our disclosure controls and procedures were not effective as of November
30, 2012.
Our principal executive officer and our principal financial officer, are
responsible for establishing and maintaining adequate internal controls over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Management is required to base its assessment of the effectiveness of our
internal control over financial reporting on a suitable, recognized control
framework, such as the framework developed by the Committee of Sponsoring
Organizations ("COSO"). The COSO framework, published in INTERNAL
CONTROL-INTEGRATED FRAMEWORK, is known as the COSO Report. Our principal
executive officer and our principal financial officer have chosen the COSO
framework on which to base its assessment. Based on this evaluation, our
management concluded that our internal control over financial reporting was not
effective as of November 30, 2012.
There were no changes in our internal control over financial reporting that
occurred during the fiscal year ended November 30, 2012 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable and not absolute assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of certain
events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
Management is aware that there is a lack of segregation of duties at the Company
due to the small number of employees dealing with general administrative and
financial matters. However, at this time management has decided that considering
the abilities of the employees now involved and the control procedures in place,
the risks associated with such lack of segregation are low and the potential
benefits of adding employees to clearly segregate duties do not justify the
substantial expenses associated with such increases. Management will
periodically reevaluate this situation.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On May 21, 2009, the Company entered into an Agreement for the Exchange of
Common Stock (the "Victory Lane Agreement") with Victory Lane Financial Elite,
LLC ("Victory Lane") with respect to a real estate lifestyle business known as
Victory Lane (the "Victory Lane Business") pursuant to which the Company
intended to purchase the Victory Lane Business. Shortly thereafter, a dispute
arose between the Company and Victory Lane regarding alleged
miss-representations made by Victory Lane in connection with the Victory Lane
Agreement.
19
In August, 2009, Victory Lane Financial Elite, LLC, Legacy Development, LLC and
Patrick Costello filed suit in the Superior Court of Tattnall County, Georgia
(Civ. No. 2009-V-381-JW) against the Company, R. Thomas Kidd and various
officers and directors of the Company, alleging that the Company was in breach
of the Victory Lane Agreement and that the Company and certain of the individual
defendants had committed various torts against the plaintiffs and that certain
of the individual defendants had violated various fiduciary and other duties
owed to the plaintiffs in connection with the Victory Lane Agreement and the
handling of the Victory Lane Business (the "VLFE Case"). The plaintiffs sought a
declaratory judgment to the effect that the Victory Lane Agreement had not been
executed, as well as money damages from the Company and the individual
defendants. The Company and Mr. Kidd have answered the Complaint, denying any
liability for the plaintiff's claims and have asserted various counterclaims
including fraud and other torts. In July 2010 the court dismissed all of the
individual defendants, other than R. Thomas Kidd, in response to a motion to
dismiss for lack of jurisdiction. The case has since been stayed.
In December, 2009, AHIFO-21, LLC filed a lawsuit in the Superior Court of
Tattnall County, Georgia (Civ. No. 2009-V-672-JS) against Victory Lane, LLC,
Patrick J. Costello and Stephen Brown (the "Victory Lane Defendants") alleging
that the Victory Lane Defendants owe the plaintiff more than $7,740,000 in
respect of one or more loans made by the plaintiff to certain Victory Lane
Defendants in connection with the Victory Lane Business (the "AHIFO Case"). In
February, 2010, the Victory Lane Defendants filed a Third Party Complaint
against the Company and R. Thomas Kidd, claiming that the Company and Mr. Kidd
should be liable for any amounts the Victor Lane Defendants are required to pay
to the plaintiff in this case. The Company and Mr. Kidd have answered the
Complaint, denying any liability for the plaintiff's claims and Mr. Kidd has
asserted various counterclaims including fraud and other torts. The Company and
Mr. Kidd filed a motion to dismiss the Third Party Complaint, but the entire
case was subsequently stayed.
Because each of the VLFE Case and the AHIFO Case have been stayed and because
discovery in those cases is not complete, the Company has not reached a
determination that any loss is other than remote and that the amount of any
damages, if any were determined adverse to the Company, would be reasonably
estimable. The Company believes that it has meritorious claims against the
opposing parties with respect to the Victory Lane Agreement and that the claims
asserted against it are not meritorious. The Company intends to defend itself
vigorously.
On January 24, 2012, the Company was made aware by the Chief Executive Officer
of the Company, that a complaint had been filed against the Company for
approximately $534,000 by the United States Trustee for the Middle District of
Florida to claim against funds we owed to our Chief Executive Officer and his
wife. On January 23, 2012, the Trustee's Motion for Approval and Notice of
Compromise was filed to obtain the approval of the court of a settlement of the
matters that were the subject of the complaint. On April 24, 2012, the Company
was advised that the complaint, which was never served, was dismissed with
prejudice by the US Trustee.
ITEM 1A - RISK FACTORS
Not required.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the interim period ended
February 29, 2012.
ITEM 4 - MINE SAFETY DISCLOSURE
None.
20
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
Exhibit
No. Document Description
--- --------------------
31.1 Certification of Ceo Pursuant to 18 U.s.c. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Cfo Pursuant to 18 U.s.c. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-oxley Act of 2002.
32.1* Certification of Ceo Pursuant to 18 U.s.c. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-oxleyact of 2002.
32.2* Certification of Cfo Pursuant to 18 U.s.c. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-oxleyact of 2002.
101 Interactive data files pursuant to Rule 405 of Regulation S-T.
----------
* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of
that section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 of the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any filings.
21
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
DOMARK INTERNATIONAL, INC.
REGISTRANT
By: /s/ Andrew Ritchie
----------------------------------
Andrew Ritchie
Chief Executive Officer
Date: February 1, 2013
By: /s/ Andrew Ritchie
----------------------------------
Andrew Ritchie
Principal Financial Officer
Date: February 1, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 1st day of February.
/s/ Andrew Ritchie
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Andrew Ritchie
Chief Executive Officer
/s/ Andrew Ritchie
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Andrew Ritchie
Principal Financial Officer
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